ST Manufacturing Ltd is evaluating an investment of a machine that cost $200,000. With the new machine, the firm’s annual cash inflow will increase by $40,000 every year for the next 7 years. At the end of the 7 years, the company will scrap the machine and do not expect to receive any salvage value for it. Given the firm’s cost of capital is 6%, calculate the internal rate of return (IRR) of this investment. Should the firm purchase the machine? Give your reason(s).
ST Manufacturing Ltd is evaluating an investment of a machine that cost $200,000. With the new machine, the firm’s annual cash inflow will increase by $40,000 every year for the next 7 years. At the end of the 7 years, the company will scrap the machine and do not expect to receive any salvage value for it. Given the firm’s cost of capital is 6%, calculate the internal rate of return (IRR) of this investment. Should the firm purchase the machine? Give your reason(s).
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 18EB: Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the...
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